REG - 3i Group PLC - Financial results for the year to 31 March 2015 <Origin Href="QuoteRef">III.L</Origin> - Part 6
15/07/2015 17:33
- Part 6: For the preceding part double click ID:nRSN1280Ne
nil (2014: £1 million).
Key management personnel
The Group's key management personnel comprise the members of the Executive Committee and the Board's non-executive
Directors. The following amounts have been included in respect of these individuals:
Group
Group 2014
2015 (restated)
Statement of comprehensive income £m £m
Salaries, fees, supplements and benefits in kind 5 5
Cash bonuses1 4 5
Carried interest and performance fees payable 17 10
Share-based payments 5 3
1. 2014 charge restated to reflect cash bonus only. For further detail, see Directors' remuneration report.
No termination benefits were paid to Executive Directors during the year or the prior year.
Group Group
2015 2014
Statement of financial position £m £m
Bonuses and share-based payments 14 7
Carried interest and performance fees payable within one year 5 1
Carried interest and performance fees payable after one year 21 6
Carried interest paid in the year to key management personnel was £3 million (2014: £3 million).
Unconsolidated structured entities
The application of IFRS 12 requires additional disclosure on the Group's exposure to unconsolidated structured entities.
The Group has exposure to a number of unconsolidated structured entities as a result of its investment activities across
its Private Equity, Infrastructure and Debt Management business lines. These structured entities fall into four categories,
namely CLO's, debt management warehouses, closed end limited partnerships (Private Equity and Infrastructure funds) and
investments in certain portfolio investments.
The nature, purpose and activities of these entities are detailed below along with the nature of risks associated with
these entities and the maximum exposure to loss.
CLO structured entities
The Group manages CLO vehicles as part of its Debt Management business. These funds predominantly invest in senior secured
loans and are financed by investors seeking credit rated, structured, investment returns.
The Group manages these funds, in return for a management fee. The Group also typically invests into the equity tranche of
these funds. The Group's attributable stakes in these entities are held at fair value, fees receivable are recognised on an
accruals basis and performance fees are accrued when relevant performance hurdles are met.
The risk and maximum exposure to loss arising from the Group's involvement with these entities are summarised below:
Balance sheet line item of asset or liability Carrying amount
Assets Liabilities Net Maximum loss exposure
£m £m £m £m
Unquoted investments 119 - 119 119
Fee income receivable 7 - 7 7
Total 126 - 126 126
At 31 March 2015, the total CLO assets under management were £6.5 billion (2014: £5.8 billion). The Group earned dividend
income of £16 million (2014: £8 million) and fee income of £30 million (2014: £7 million) during the year from CLO
structured entities.
Warehouse structured entities
Ahead of future CLO fund launches, warehouse facilities are usually established to support the creation of senior secured
debt portfolios. These entities are financed by the Group along with the bank appointed to operate the warehouse facility.
The Group makes a commitment to the warehouse, typically taking the first loss position and is at risk for margin calls if
the portfolio underperforms. The Group's attributable stakes in these warehouses are held at fair value.
The risk and maximum exposure to loss arising from the Group's involvement with these entities are summarised below:
Balance sheet line item of asset or liability Carrying amount
Assets Liabilities Net Maximum loss exposure
£m £m £m £m
Unquoted investments 43 - 43 43
Total 43 - 43 43
At 31 March 2015, the total net asset value of the warehouse entities was £43 million (2014: £17 million). The Group earned
interest income of £6 million (2014: £2 million) during the year from warehouse structured entities.
Closed end limited partnerships
The Group manages a number of closed end limited partnerships, which are primarily Private Equity or Infrastructure
focused, in return for a management fee. The purpose of these partnerships is to invest in Private Equity or Infrastructure
investments for capital appreciation. Limited Partners, which in some cases may include the Group, finance these entities
by committing capital to them and cash is drawn down or distributed for financing investment activity.
The Group's attributable stakes in these entities are held at fair value, fees receivable are recognised on an accruals
basis and carried interest is accrued when relevant performance hurdles are met.
The risk and maximum exposure to loss arising from the Group's involvement with these entities are summarised below:
Balance sheet line item of asset or liability Carrying amount
Assets Liabilities Net Maximum loss exposure
£m £m £m £m
Carried interest receivable 33 - 33 33
Total 33 - 33 33
At 31 March 2015, the total assets under management relating to these entities was £2.2 billion (2014: £2.5 billion). The
Group earned fee income of £31 million (2014: £33 million) and carried interest of £28 million (2014: £(1) million) in the
year.
Investments that are structured entities
The Group makes investments on behalf of itself and third party funds that it manages, for capital appreciation purposes.
In a small number of cases, these investments fall under the classification of a structured entity as they are funds
managed by the General Partner under a limited partnership agreement.
The Group's attributable stakes in these entities are held at fair value.
The risk and maximum exposure to loss arising from the Group's involvement with these entities are summarised below:
Balance sheet line item of asset or liability Carrying amount
Assets Liabilities Net Maximum loss exposure
£m £m £m £m
Unquoted investments 2 - 2 2
Total 2 - 2 2
At 31 March 2015, the total fair value of these investments, including stakes held by third parties was £33 million (2014:
£53 million). The Group recognised an unrealised loss of £1 million from investments that are structured entities (2014: £1
million realised profit).
Regulatory information relating to fees:
Under AIFMD, 3i Investments plc acts as an Alternative Investment Fund Manager ("AIFM") to 3i Group plc. In performing the
activities and functions of the AIFM, the AIFM or another 3i company may pay or receive fees, commissions or non-monetary
benefits to or from third parties of the following nature:
§ Transaction fees: 3i companies receive monitoring and directors' fees from portfolio companies. The amount is agreed with
the portfolio company at the time of the investment but may be re-negotiated. Where applicable, 3i may also receive fees on
the completion of transactions such as acquisitions, re-financing or syndication either from the portfolio company or a
co-investor. Transaction fees paid to 3i are included in portfolio income
§ Payments for third party services: 3i companies may retain the services of third party consultants; for example for an
independent director or other investment management specialist expertise. The amount paid varies in accordance with the
nature of the service and the length of the service period and is usually, but not always, paid/reimbursed by the portfolio
companies. The payment may involve a flat fee, retainer or success fee. Such payments, where borne by 3i companies, are
usually included in portfolio income.
§ Payments for services from 3i companies: One 3i company may provide investment advisory services to another 3i company
and receive payment for such service.
9 Restatement of prior period information
As explained in the Significant accounting policies, the Group has restated comparative information where relevant,
following the early adoption of changes provided in the narrow scope amendment to IFRS 10.
The impact of this restatement on a line by line basis is presented below.
Impact on Consolidated statement of comprehensive income for the year ended 31 March 2014
As originally reported Effect of restatement Restated presentation
£m £m £m
Unrealised profit on the revaluation of investments 77 4 81
Fair value movements on investment entity subsidiaries 454 (21) 433
Fees receivable from external funds 50 25 75
Operating expenses (118) (18) (136)
Interest receivable 2 1 3
(Expense)/income from fair value subsidiaries (5) 13 8
Carried interest and performance fees receivable (1) 4 3
Carried interest and performance fees payable (16) (1) (17)
Acquisition related earn-out charges - (6) (6)
Income taxes (2) (1) (3)
Other income statement items 37 - 37
Total comprehensive income for the year 478 - 478
Impact on Consolidated statement of financial position as at 31 March 2014
As originally reported Effect of restatement Restated presentation
£m £m £m
Assets
Unquoted investments 1,279 45 1,324
Investments in investment entities 1,973 (64) 1,909
Carried interest and performance fees receivable 8 9 17
Intangible assets 10 15 25
Deferred income taxes 1 2 3
Other current assets 72 4 76
Cash and cash equivalents 643 31 674
Other assets 402 - 402
Total assets 4,388 42 4,430
Liabilities
Carried interest and performance fees payable (26) (4) (30)
Acquisition related earn-out charges payable (2) (16) (18)
Deferred income taxes - non current - (2) (2)
Provisions (4) (1) (5)
Trade and other payables (158) (8) (166)
Acquisition related earn-out charges payable - (10) (10)
Current income tax (2) (2) (4)
Deferred income taxes - current (1) 1 -
Other liabilities (887) - (887)
Total liabilities (1,080) (42) (1,122)
Equity
Translation reserve 242 1 243
Capital, revenue and other reserve 1,051 (1) 1,050
Other reserves 2,015 - 2,015
Total equity 3,308 - 3,308
Impact on Consolidated cash flow statement for the year ended 31 March 2014
As originally reported Effect of restatement Restated presentation
£m £m £m
Cash flow from operating activities
Purchase of investments (114) (34) (148)
Proceeds from investments 452 2 454
Cash inflow from fair value subsidiaries 46 16 62
Portfolio fees received 4 2 6
Fees received from external funds 52 23 75
Carried interest and performance fees received 1 4 5
Carried interest and performance fees paid (20) 5 (15)
Operating expenses (125) (6) (131)
Income taxes paid (3) (4) (7)
Other cash flows (243) - (243)
Change in cash and cash equivalents 50 8 58
Opening cash and cash equivalents 610 23 633
Effect of exchange rate fluctuations (17) - (17)
Closing cash and cash equivalents 643 31 674
Portfolio and other information
25 large investments
The 25 investments listed below account for 81% of the portfolio at 31 March 2015 (2014: 75%).
For each of our investments we have assessed whether they classify as accounting subsidiaries under IFRS and/or
subsidiaries under the UK Companies Act. This assessment forms the basis of our disclosure of accounting subsidiaries in
the financial statements.
The UK Companies Act defines a subsidiary based on voting rights, with a greater than 50% majority of voting rights
resulting in an entity being classified as a subsidiary. IFRS 10 applies a wider test and, if a Group is exposed, or has
rights to variable returns from its involvement with the investee and has the ability to affect these returns through its
power over the investee then it has control, and hence the investee is deemed an accounting subsidiary. Accounting
subsidiaries under IFRS 10 within the 25 large investments below are noted. None of these investments are UK Companies Act
subsidiaries.
In accordance with Section 29 of the Alternative Investment Fund Manager Directive ("AIFMD"), 3i Investments plc, as AIFM,
encourages all controlled portfolio companies to make available to employees and investors an Annual report which meets the
disclosure requirements of the Directive. These are available either on the portfolio company's website or through filing
with the relevant local authorities.
Residual Residual
Business line cost cost Valuation Valuation
Geography March March March March
Investment First invested in 2014 2015 2014 2015 Relevant transactions
Description of business Valuation basis £m £m £m £m in the year
Action* Private Equity 57 2 501 592
Non-food discount retailer Benelux
2011 Refinancing returned
Earnings £113m of proceeds.
3i Infrastructure plc* Infrastructure 302 302 404 481
Quoted investment company, UK
investing in infrastructure 2007 £20m dividends paid
Quoted to 3i Group.
Scandlines* Private Equity 108 114 193 262
Ferry operator between Denmark Denmark/
and Germany Germany
2007
DCF
Amor / Christ* Private Equity 50 129 70 165 Follow on investment in Christ
Distributor and retailer of Germany of £99m to acquire Christ, a
affordable jewellery 2010 / 2014 leading retailer for jewellery
Earnings and watches in Germany.
Element Materials Technology* Private Equity 78 62 124 145
Materials testing and inspection Benelux
2010
Earnings
Quintiles Private Equity 52 41 122 144
Clinical research outsourcing US
solutions 2008
Quoted
Mayborn* Private Equity 113 129 116 133
Manufacturer and distributor UK
of baby products 2006
Earnings
ACR Private Equity 105 105 101 120
Pan-Asian non life reinsurance Singapore
2006
Industry metric
Q Holding* Private Equity - 100 - 109
Precision engineered US
elastomeric components 2014
manufacturer Earnings New investment.
AES Engineering Private Equity 30 30 96 102
Manufacturer of mechanical UK
seals and support systems 1996
Earnings
Basic Fit* Private Equity 84 91 82 102
Discount gyms operator Benelux
2013
Earnings
Tato Private Equity 2 2 85 80
Manufacture and sale of UK
speciality chemicals 1989
Earnings
GIF* Private Equity 64 68 65 78
International transmission Germany
testing specialist 2013
Earnings
Dynatect* Private Equity - 65 - 71
Manufacturer of engineered, US
mission critical protective 2014
equipment Earnings New investment.
Aspen Pumps* Private Equity - 65 - 64
Manufacture of pumps and UK
accessories for the air conditioning, 2015
heating and refrigeration industry Earnings New investment.
Azelis* Private Equity 72 76 26 62
Pan-European speciality Luxembourg
chemical distributor 2007 Exit completed in May
Imminent sale 2015.
Mémora* Private Equity 141 159 67 61
Funeral service provider Spain
2008
Earnings
JMJ* Private Equity 44 42 43 53
Global management consultancy US
2013
Earnings
Geka* Private Equity 56 69 55 53
Manufacturer of brushes, Germany
applicators and packaging 2012
systems for the cosmetics industry Earnings
Agent Provocateur* Private Equity 49 53 35 53
Women's lingerie and assorted UK
products 2007
Earnings
Refresco Gerber Private Equity 46 30 42 47
European bottler of soft drinks and Benelux IPO in March 2015
fruit juices for retailers and branded 2010 generating £25m of
customers Quoted proceeds.
OneMed Group* Private Equity 108 117 44 47
Distributor of consumable Sweden
medical products, 2011
devices and technology Earnings
Eltel Networks* Private Equity 89 13 70 47
Infrastructure services for Sweden IPO in February 2015
electricity and telecoms 2007 generating £87m of
networks Quoted proceeds.
MKM Private Equity 20 22 27 43
Building materials supplier UK
2006
Earnings
Etanco* Private Equity 80 87 44 40
Designer, manufacturer and France
distributor of fasteners and 2011
fixings systems Earnings
1,750 1,973 2,412 3,154
* IFRS accounting subsidiary
Glossary
Alternative Investment Funds ("AIFs") At 31 March 2015, 3i Investments plc as AIFM, managed four AIFs. These were 3i Group
plc, 3i Growth Capital Fund, 3i Eurofund V and the European Middle Market Loan Fund.
Alternative Investment Fund Managers Directive ("AIFMD") became effective from July 2013. As a result, at 31 March 2015, 3i
Investments plc is registered as an Alternative Investment Fund Manager ("AIFM"), which in turn manages four AIFs.
Alternative Investment Fund Manager ("AIFM") is the regulated manager of AIFs. Within 3i, this is 3i Investments plc.
Assets under management ("AUM") A measure of the total assets that 3i has to invest or manages on behalf of shareholders
and third-party investors for which it receives a fee.
Barclays Infrastructure Fund Management business ("BIFM") Acquired by 3i in November 2013 when it managed two active
unlisted funds that invest in UK and European PPP and energy projects, with assets under management of over £700 million.
Board The Board of Directors of the Company.
Capital redemption reserve is established in respect of the redemption of the Company's ordinary shares.
Capital reserve The capital reserve recognises all profits that are capital in nature or have been allocated to capital.
Following changes to the Companies Act the Company amended its Articles of Association at the 2012 Annual General Meeting
to allow these profits to be distributable by way of a dividend.
Carried interest is accrued on the realised and unrealised profits generated taking relevant performance hurdles into
consideration, assuming all investments were realised at the prevailing book value. Carry is only actually paid or received
when the relevant performance hurdles are met, and the accrual is discounted to reflect expected payment periods.
Carry receivable is generated on third-party capital over the life of the relevant fund when relevant performance criteria
are met.
We pay carry to our investment teams on proprietary capital invested and share a proportion of carry receivable from
third-party funds. This total carry payable is provided through schemes which have been structured historically over two
year vintages to maximise flexibility in resource planning.
Collateralised Loan Obligation ("CLO") A form of securitisation where payments from multiple loans are pooled together and
passed on to different classes of owners in various tranches.
Company 3i Group plc.
Discounting The reduction in present value at a given date of a future cash transaction at an assumed rate, using a
discount factor reflecting the time value of money.
Dividend income from equity investments and CLO capital is recognised in the Statement of comprehensive income when the
shareholders' rights to receive payment have been established.
Earnings before interest, tax, depreciation and amortisation ("EBITDA") EBITDA is defined as earnings before interest,
taxation, depreciation and amortisation and is used as the typical measure of portfolio company performance.
EBITDA multiple Calculated as the enterprise value over EBITDA, it is used to determine the value of a company.
Executive Committee The Executive Committee is responsible for the day-to-day running of the Group and comprises: the Chief
Executive, Group Finance Director, the Managing Partners of the Private Equity, Infrastructure and Debt Management
businesses and the Group's General Counsel.
Fair value movements on investment entity subsidiaries The movement in the carrying value of Group subsidiaries, classified
as investment entities under IFRS 10, between the start and end of the accounting period converted into sterling using the
exchange rates at the date of the movement.
Fair value through profit or loss ("FVTPL") FVTPL is an IFRS measurement basis permitted for assets and liabilities which
meet certain criteria. Gains and losses on assets and liabilities measured as FVTPL are recognised directly in the income
statement.
Fee income is earned directly from investee companies when an investment is first made and through the life of the
investment. Fees that are earned on a financing arrangement are considered to relate to a financial asset measured at fair
value through profit or loss and are recognised when that investment is made. Fees that are earned on the basis of
providing an ongoing service to the investee company are recognised as that service is provided.
Fees receivable from external funds are fees received by the Group, from third parties, for the management of private
equity, infrastructure and debt management funds.
Foreign exchange on investments arises on investments made in currencies that are different from the functional currency of
the Group entity. Investments are translated at the exchange rate ruling at the date of the transaction. At each subsequent
reporting date investments are translated to sterling at the exchange rate ruling at that date.
Fund Management A segment of the business focused on generating profits from the management of private equity,
infrastructure and debt management funds.
Fund ManagementOperating profit comprises fee income from third parties as well as a synthetic fee received from the
Proprietary Capital business, less operating expenses incurred by the Fund Management business.
Gross investment return ("GIR") GIR includes profit and loss on realisations, increases and decreases in the value of the
investments we hold at the end of a period, any income received from the investments such as interest, dividends and fee
income and foreign exchange movements. GIR is measured as a percentage of the opening portfolio value and is the principal
tool for assessing our Proprietary Capital business.
Income from loans and receivables is recognised as it accrues. When the fair value of an investment is assessed to be below
the principal value of a loan the Group recognises a provision against any interest accrued from the date of the assessment
going forward until the investment is assessed to have recovered in value.
International Financial Reporting Standards ("IFRS") IFRS are accounting standards issued by the International Accounting
Standards Board ("IASB"). The Group's consolidated financial statements are required to be prepared in accordance with
IFRS.
Investment basis Accounts prepared assuming that IFRS 10 had not been introduced. Under this basis, we fair value portfolio
companies at the level we believe provides the most comprehensive financial information.
The commentary in the Strategic Report refers to this basis as we believe it provides a more understandable view of our
performance.
Key Performance Indicators ("KPI") This is a measure by reference to which the development, performance or position of the
Group can be measured effectively.
Money multiple Calculated as the cumulative distributions plus any residual value divided by paid-in capital.
Net asset value ("NAV") NAV is a measure of the fair value of our proprietary investments and the net costs of operating
the business.
Operating cashprofit Defined as the difference between our cash income (cash fees from managing third-party funds and cash
income from our proprietary capital portfolio) and our operating expenses, excluding restructuring costs.
Operating profit Includes gross investment return, management fee income generated from managing external funds, the costs
of running our business, net interest payable, movements in the fair value of derivatives, other losses and carried
interest.
Portfolio income is that which is directly related to the return from individual investments. It is recognised to the
extent that it is probable that there will be economic benefit and the income can be reliably measured. It is comprised of
dividend income, income from loans and receivables and fee income.
Proprietary Capital A segment of the business focused on generating profits from shareholders capital which is available to
invest.
Proprietary Capital operating profit The profit comprises gross investment return, operating expenses, a fee paid to the
Fund Management business and balance sheet funding expenses such as interest payable.
Public Private Partnership ("PPP") A PPP is a government service or private business venture which is funded and operated
through a partnership of government and one or more private sector companies.
Realised profits or losses over value on the disposal of investments The difference between the fair value of the
consideration received less any directly attributable costs, on the sale of equity and the repayment of loans and
receivables, and its carrying value at the start of the accounting period, converted into sterling using the exchange rates
at the date of disposal.
Revenue reserve recognises all profits that are revenue in nature or have been allocated to revenue.
Segmental reporting Operating segments are reported in a manner consistent with the internal reporting provided to the
Chief Executive who is considered to be the Group's chief operating decision maker. All transactions between business
segments are conducted on an arm's length basis, with intra-segment revenue and costs being eliminated on consolidation.
Income and expenses directly associated with each segment are included in determining business segment performance.
Share-based payment reserve is a reserve to recognise those amounts in retained earnings in respect of share-based
payments.
Synthetic fee Internal fee payable to the Fund Management business for managing our proprietary capital.
Total return Comprises operating profit less tax charge less movement in actuarial valuation of the historic defined
benefit pension scheme.
Total shareholder return ("TSR") This is the measure of the overall return to shareholders and includes the movement in the
share price and any dividends paid, assuming that all dividends are reinvested on their ex-dividend date.
Translation reserve comprises all exchange differences arising from the translation of the financial statements of
international operations.
Underlying fund managementprofit Calculated as fee income minus operating expenses related to Fund Management activities,
excluding restructuring and amortisation costs.
Unrealised profits or losses on the revaluation of investments The movement in the carrying value of investments between
the start and end of the accounting period converted into sterling using the exchange rates at the date of the movement.
Value weighted earnings growth The growth in last 12 month earnings, when comparing to the preceding 12 months. This
measure is the key driver of our private equity portfolio performance.
This information is provided by RNS
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